Internet of Things Unlocking Optimum Profitability in Petroleum Sector

Internet of Things Unlocking Optimum Profitability in Petroleum Sector

By Omnia Farrag

When WiFi was available for customers use in late the 1990s, this was revolutionary. It benefited different industries through making communication faster, easier, and cheaper between people. However, what will happen if all the electronic devices became connected to internet including kitchens, cars, medical devices, industrial machines, and sensors? This connection is basic concept of the Internet of Things (IoT).

Many of the IoT applications are designed to make daily life easier, such as heart monitoring fitness bands or smart home appliances. IoT is also used to connect machine and devices in industries like oil and gas, power generation, and healthcare. In this case, IoT applications are usually referred to as Industrial Internet of Things (IIoT), also known as ‘Industrial Internet’. The main difference between IoT and IIoT is that the latter performs more critical operations. Accordingly, system failures and unplanned downtime in IIoT applications can result in life-threatening or high-risk situations.

Industrial Internet is not only limited to devices that monitor the performance of machines and engines. It also includes machines that help the operators in managing other devices through telling them how to optimize productivity or detect a failure before it occurs.

This will help businesses to maximize profits. For example, General Electric (GE) reported that one of its customers, a power company, saves approximately $0.5 million annually through using Industrial Internet powered Asset Performance Management software. It uses this software to gain asset, plant and fleet reliability. Scottish and Southern Energy (SSE) also manage to save around $3 million per year by using Reliability Management around the clock to maintain uptime and keep the lights on.

Experts predict that IoT applications will become more popular in the coming few years. The Business Insider’s premium research service expects there will be more than 24 billion IoT devices globally by 2020 with investment of $6 billion in application development, device hardware, system integration, data storage, security, and connectivity. However, these investments will pay back as the same research forecast these $6 billion investments to generate $13 trillion by 2025.This rapid widespread of IoT means that more data will be created from the increasingly connected machines, systems, and devices. As a result, the volume of critical and valuable insights to be realized and acted upon is limitless.

IIoT in the Hydrocarbon Industry in Egypt and Worldwide

Crude oil prices globally witnessed more than 50% decrease during the last four years stepping down from more than $100 per barrel in 2014 to less than $50 nowadays, according to a 2017 report entitled “Global IoT in Oil and Gas Market”. This resulted in decreasing the venue of the five major oil and gas companies by approximately 15% on an average in 2016 in comparison with their profit in 2015. Experts believe that IoT applications have the potential to help the industry to maximize its operational efficiency, productivity, and improve asset portfolio in order to balance the current significant prices drop.

Oil and gas companies can resort to IoT technologies to cope up with the oil prices fluctuation. Analysts at Japanese bank Nomura believe that in the future companies might be more profitable with oil prices at $70 per barrel than they were at $100 per barrel using IoT technologies. Deloitte, a UK-incorporated multinational professional services network, saidthat extraction technologies, including IoT, suggest oil price equilibrium of $20 to $30 less per barrel. Digital technologies in petroleum industry can lower capital expenditures by up to 20% and cut operating costs in upstream by 3-5% and by about half that in downstream, according to the international consulting company, McKinsey.

Major oil companies such as Shell, Engie, Total, BP, Aramco, and Schlumberger are considered pioneers in incorporating IoT applications in the hydrocarbon industry. The lack of skilled workers, increasing number of cyber-attacks, aging infrastructure, and need to increase operational efficiency will drive to oil and gas industry to invest more in IoT applications, according to the 2017 report. The report expect IoT share in the international oil and gas industry to hit $30.57 billion by 2026.

The most common IoT technology in the oil and gas industry is data analytics or software systems that analyze the data given by IoT devices. Analytics represent 76% of IoT solution used in the oil and gas market in 2016.

In Egypt, experts believe that the Industrial Internet of Things can boost the oil and gas sector. IIoT has been introduced into the oil industry over the past few years. In May 2017, Honeywell exhibited its Connected Plant, which is based on IIoT in its Oil & Gas Technologies Symposium exhibition. According to Honeywell, this plant can help with reducing downtime, increased efficiency, and improved safety and security.

At the same time, the Swedish-Swiss multinational corporation ABB announced in Cairo last May that all the devices it manufactures will be connected to the internet. These devices include censors that monitor the machines, which help the operator to be informed with any breakdown in the same moment it happens.

Benefits of the Industrial Internet in the Petroleum Sector

IoT can be used in the industry’s three main sectors: upstream, midstream, and downstream. In exploration and production (E&P), analyzing diverse sets of physics, non-physics, and cross-disciplinary data will help in increasing production and develop exploration, Deloitte mentioned on its website. “By some projections, IoT applications could reduce production and lifting costs by more than $500 million of a large O&G integrated company with annual production of 270 million barrels,” Deloitte added.

Apache, for example, improved the performance of its electrical submersible pumps and increased the company’s ability to forecast fields’production capacity using IoT application. The giant American E&P company, along with an analytics software firm, used a three-step system to achieve this result. First, using data to predict submersible-pump failure with prescriptions to avoid future failures. These data are used in the second step to recommend the optimal pump configuration for the next well. In the third step, the data is to assess the fields’ potential production capacity.

For midstream sectors, IoT can facilitate building infrastructure based on the industry most updated data, which will ensure better network integrity and new commercial opportunities. As for the downstream sector, Deloitte says that it can be the most benefited sector from IoT in the oil and gas industry through expanding these technologies in the supply chain and digital marketing.

Using IoT in refineries proved its efficiency as most of the refineries currently do not exert effort in analyzing the data they have. For instance, Phillips 66 started to use wireless temperature and flow-measurement sensors to monitor the accumulating unwanted metrical that reduce the equipment’s efficiency. This helped the energy company to spot energy losses and track periods of best performance and identify best practices through comparing the performance of exchangers across units. This technique helped Phillips 66 to save $55,000 per exchanger.

Disadvantages of the Internet of Things

IoT by definition means making all the industry’s devices connected to the internet, which expose these devices to the probability of being subject to cyberattacks. It might also compromise the privacy of these companies. Forbes reported that security attacks can subject the oil and gas industry to many hazards from glitches to safety measures violations resulting to causalities. Another security threats include plant shutdown, equipment damage, utilities interruption, production circle shutdown, inappropriate product quality, and undetected spills, Forbes added.

Meanwhile, the main challenge is the complexity of IoT system. Unlike the rest of the most common technologies, IoT is not standardized. There is no unified concept for tagging and monitoring with sensors. IoT involves various technologies with different architecture. This complexity increases the potential of failures pushing companies to consume time in restoring the devices and money to hire more skilled workers to deal with different IoT softwares. IoT application might be expensive as IoT providers need to conduct various interoperability tests before launching a new system. Finally, IoT is promising, yet still a new technology that will take time to develop and become more mature and reliable meaning that companies will have to try various IoT systems and updates in order to reach the most efficient system for them.

Is the Industrial Internet the Right Option?

Security and privacy compromise is still a problem. However, pumping investment in cybersecurity will definitely help to eliminate these threats. This is what oil companies are doing now; ABI Research expects that petroleum companies to spend $1.87 billion on cyber security by the end of this year, according to Forbes.

Installing Industrial Internet is a tempting option for oil companies as it proved to increase efficiency and profitability. Yet, likewise any other new technology, it still has shortcomings. Some of these disadvantages could be eliminated. The development of Industrial Internet can make it less complex. The market itself can solve the issue of replacing employees with IoT machines by hiring more skilled employees to run and supervise Industrial Internet software. Regarding the cost, the data provided throughout the article shows that savings and profits from IoT applications can overweigh the cost.


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